Availability bias, gameStop, stock bubbles and flash crashes
What happened with GameStop is this
a clear signal that retail investors have now the power to make crowd investment and fight against hedge funds, banks and even institutional investors that serve them. If you know the open positions of a bank, .... You just need to make the base stock price go up if they are short-selling or down if they are holding long. These professional investors have trading guidelines, strategies and risk management constraints that define how much money they are allowed to lose and how they should hedge their open positions. All good investors know that when it comes to stocks options are there for balancing our portfolios and vice-versa. Cross trading is something well known by Wall Street traders and algorithmic traders like me. The flow of option orders is linked to the flow of stock orders. We had already built algo that use AI to detect the footprint of option portfolio balancing of institutional investors knowing their stocks open position. What we see here is the application of one of the main power and characteristic of the internet to the financial markets. This power and characteristic led us to crowdfunding platforms, online petitions.. . We had already seen the role internet played in the Printemps Arab and other events like this. The availability bias and the cascade effect is something that has been already studied in online platforms and even in financial ones like etoro by the professors Tversky and kahnman. Like this flash crash, This bubble of the GameStop stock price and the role played by an online community in Reddit with influencers like Elon musk is just another example of what we already know years ago. I forced myself days to not write about but I have so many experiences, thoughts, concepts and ideas about financial markets that I finally decided to share. I studied well enough flash crashes and bubbles to not be surprised by this one even if I did not predict it before it happens. I have predicted bubbles in the past away from wall street alone with my computer in Dakar my born city. Bubble like the one of Chesapeake CHK.
Notice that all of this is about how ideas spread and how ideas spread online is what I am interested in and writing about in all my medium posts. Giving power to retail and institutional investors on behalf of speed traders using hft strategies is a long time debate raised by people like haim bodek and the book flash boys. Now that there is a clear insight that tells us retail investors have power. We should know what good things to do with it.
May come up with deeper analysis in coming posts.
